500 Global Startup Series: Enter the Middle East

PUBLISHED December 22, 2014

by Jess Erickson

500 Global Startup Series: Enter the Middle East

The 500 Global Startup Series brings insights from new tech regions and puts a spotlight on talented entrepreneurs in every corner of the world. We’re kicking off a 7 part series and beginning with a comprehensive look into the tech landscape of the Middle East & North Africa region (MENA). Over the next few months, we’ll also explore different areas such as Israel, India, Southeast Asia, Latin America, China and more. We’ll also discuss the successes and challenges that global investors and founders face in 2015 and beyond.

It’s clear that a major entrepreneurial shift is taking place in the Middle East and the startup scene has grown exponentially in the past few years. 500 is excited to see Syrians, Egyptians, Turkish, Lebanese and Jordanians embracing entrepreneurship. A number of VC’s and accelerators have also launched over the past years and this new activity serves as a strong benchmark for 500. Whether its our own investment into a company or angels investing in local incubators, it’s certain that MANY are in search of the next big thing.

Two years ago, 500 made its first investment in the Middle East — in a startup called Jeeran, a local reviews platform that has grown to a quarter of a million reviews in 10 cities. Fast forward to now, we have Partner Hasan Haidar permanently based in Bahrain and scouting for startups who will further develop the foundations of a digital and prosperous future for the region. The next generation is shaping a digital landscape and a lot of players want in on the action, including 500.

“The MENA region is home to an active, passionate and driven young population, with tech savvy founders seizing the opportunities in their own back yard. The MENA region is an untapped opportunity, with 400m people sharing the same language and similar cultures, 50%+ smartphone penetration in some markets, and 1/3 of the population under the age of 15” – Hasan Haider, Partner @500

We’ve witnessed tremendous growth in internet usage and just to highlight an example, internet users in Egypt grew 3-fold in the past 5 years – now at 45 million users. Egypt has also observed an unprecedented growth in the number of new tech startups after the revolution in 2011. (Image Source: World Bank)

With a region ripe with potential, 500 hopes to fuel this entrepreneurial movement by bringing smart capital to MENA entrepreneurs. 500 is discovering great opportunities in mobile tech, e-commerce, video, content, hardware, SaaS, healthcare, solar energy, education, social networks, gaming and much more.

INNOVATION

Today we see numerous startups finding success: Souq.com (Dubai), MarkaVIP (Istanbul), U-Turn (Saudi) and OTS (Saudi/Jordan/Egypt) to name a few. The Middle East is showing huge potential and we’re find more and more founders across the region building digital solutions for local problems. Significant acquisitions of startups by international and regional companies include: Corona Labs, Thompson Reuters, and N2V. We’re particularly happy to see women at the helm of building tech startups in the region and we were excited to recently invest in our first female-led startup in the Middle East.

“What is most exciting about the ecosystem in the Middle East are the STARTUPS themselves. With all challenges in the region, they must be brave and deal with the gaps in the investment scene as well as political and economic hurdles. Entrepreneurs stand tall despite the lack of resources.” – Riham Mahafzah, CEO & Co-founder of SilkRoad Images.

“The Syrian tech scene is trying to redefine itself. The war changed everything and Syrian entrepreneurs are trying to change their business model, find new markets.. basically they’re trying to survive. Some of them were able to adapt quickly.” – Moe Gashim, CEO @ShopGo

With a growing youth population and high unemployment rates, we may also witness a spike in entrepreneurship out of opportunity and necessity. Most young folks have access to technology and they have ideas, but they need startup capital and that’s where 500 can help. We’ve recently invested and recruited several MENA companies into our accelerator program:

500 looks forward to meeting more founders in the region and helping unlock their ideas, energy and potential. Some extraordinary entrepreneurs from the Middle East are even landing right on our doorstep here in the Valley. We’re left inspired.

CHALLENGES & OPPORTUNITY

“I believe that the Middle East is the land of opportunity. So many challenges in all areas and sectors begging for solutions and hence the opportunity. The online/tech market is also not as saturated as in developed markets.” – Ameer Sherif, CEO @Wuzzuf @BasharSoft

Some observers would argue that with significant geopolitical instability in the Middle East, the risk and uncertainty is too high for investment. As with all regions of the world, there are many complexities and histories to understand before entering into a new market. For one, bankruptcy is a criminal offence in several MENA countries which makes it difficult to develop a risk-taking entrepreneurial culture. It also happens to be illegal for American VCs to invest into Iranian companies. The list goes on. However, one could argue that technology and entrepreneurship can be extremely transformative for the region in the coming years. Even in times of political uncertainty, 500 sees a huge opportunity in the Middle East. With the right density of tech talent, creativity, risk capital and belief that it can be done, anything is possible.

500 Founding Partner Dave McClure argues there is a lack of startup experience on the investor side, at least for most MENA tech investors. There is a lot of capital in the region, however its mostly being managed by finance and real estate investors, not tech entrepreneurs who are angel investors or seed fund managers, as in Silicon Valley. Still, there is a large sum of money to deploy in the region and 500 believes that multiple small funds would help dramatically. 500 would like to coinvest with more seed funds of size $10M-$100M active in the region, such as MENA Ventures, Sawari Capital – Flat 6 Labs, WAMDA, Oasis 500, Silicon Badia, to name just a few. Unfortunately, aside from those investors, almost no one is investing at the $250K – $2M range in the MENA region.

“The general understanding of venture capital, valuations and equity financing in the region is still developing. We will be running and participating actively in regional events and programs to try and raise the level of knowledge of the asset class with investors here. Founders also have an issues where there are very few mentors that can actively advise them in the region. By putting startups from the region through our Silicon Valley accelerator programs we hope to significantly improve the tools available to startups from the region for growth.” – Hasan Haider, Partner @500

There is also an adversity towards ‘risk’ in the Arabic speaking market. Investors want safe bets. At 500 we know that big successes come through experiencing and learning from failures, then continuing to take risk and persevering, and we believe that a cultural shift in this direction can happen over time. If an entrepreneur can learn to fail, pick up the pieces and start another company, others will follow. With this shift, there will be a larger acceptance around failure and new role models will emerge. Obstacles can be overcome.

FINAL THOUGHTS:

There is still a great deal of work to be done and a long silk road ahead. 500 is excited to see what MENA entrepreneurs will build in 2015 and we hope to invest, guide and connect them with a strong network of global mentors, advisors, investors and fellow startups.

“500 Startups is bullish on opportunities to invest in the MENA / Arab-speaking market, and the accelerating adoption of internet, smartphone, and payments activity in the region — as a result, we plan to increase activity in 2015 & beyond.” – Dave McClure, Globetrotter & Founding Partner @500

Published by Jess Erickson

Jess loves technology, equality and people, which is why she’s 500’s Director of Diversity. She is also the founder of the global women in tech organization Geekettes. A professional surfer of the web, she’s finally ready to settle back at home after seven years abroad and become an amateur surfer of the West Coast waves.

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